YouSaid · the spoken record

Kathy Jones

lines on the record: 69
first: 2023-12-12
most recent: 2023-12-12
sittings or episodes: 1
sources: podcast

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“We'll leave it there. Kathy Jones, thank you so much for joining us and sharing your views, your insights, your time. People can follow you on Twitter at Kathy Jones, where you share a lot of very interesting and insightful charts data. Thanks again, and thanks everyone for watching.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Right, exactly. But if that's the case, then that's an important pivot that could take place justifiably, I think Europe is much weaker than the US in terms of economic growth and inflation is probably headed lower there faster than had been anticipated by the ECB.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it's possible when you start looking at the numbers there, and I think somebody from the ECB was out today saying, well, you know, maybe we've miscalculated that inflation has come down a lot faster than we thought. I think it might have been, it's all schnabel. So it was a pretty big talk.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Strong. So I think that if we continue to grow at a marginal, even a small margin to the rest of the world, west of the developed world, that will probably continue to bring those capital flows in. So I don't see a huge downside to the dollar. I see some upside, but it's going to be more moderate this year. Is that going to be a major bull or bear market, in my view, because a dollar this year?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“My view on the dollar was we were in a 10 or 11 year bull market. I hit the peak, have come down a bit. I think there's a bit of room here for it to come down some more. If the Fed leads the cycle on the downside, but I don't think there's much downside in the dollar because there's more downside in growth outside, particularly in Europe from here. And China's been soft. So I think the dollar is probably going to bounce around and consolidate here, but it probably has a bit more upside from where it is now because the market's built in. Oh, the Fed's going to be aggressive and lead this rate cycle. And now it's looking like, no, maybe not. Maybe ECB is going to lead the rate cycle. Maybe, you know, we've got more risk of recession outside the US than in. And those capital flows into the US have continued to be very, very...”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“I tend to think that domestic investors have been underinvested in US bonds for a while. And so I think that they've probably, if there's a marginal buyer stepping in when yields are attracted, it will be domestic retail investors, mutual fund, et cetera. I think they've been underallocated. I don't know what's going to happen with the stock market, but I think rebalancing may come back into favor after a couple of years when, oh, there's no yield in bonds, everything's in stocks, et cetera. Now there's yield. I think that probably the marginal buyer on upticks in yields will be probably domestic investors. So the retail investors through the mutual funds in ETIA.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So as bond yields decliner, if they decline, who do you think the marginal buyer will be if we have the banks, the insurance companies, central banks, if they resume quantitative easing, which I'm not saying they will? Obviously, it will be a combination of all those parties and more, although maybe not including the central banks. But is there any sort of area where you think there will be a particular pickup in a strength of who the buyer will be?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“know the yen has been all over the place you know initially stronger than weaker you know really moving and as you said that hedging is still relatively expensive for foreign investors and for japanese investors in the u.s not as expensive as it was but it does diminish some of the yield spread so japan's a different story i think that if there's A story in 2024 around international yield is going to be around the Japanese bond market and the potential for yields to go up and the yen to recover as well. So that's going to be tricky for a foreign investor in Japan.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“But I also think the euro will probably come down a little bit with it, not dramatically, but you have to take that into consideration if you're looking at European bonds. Similar story with Canada, Australia, you know, Canada's got a property market issue that we think will result in the Bank of Canada having to ease rates at some stages of the game sooner and more aggressively say than the US because the property sector is more affected by the change of mortgage rates. So we think that's a potential for some return there, but again, will affect the currency. Japan is kind of a different story because you have the Bank of Japan talking about exiting yield curve control and allowing yields to go up. And they did, they have gone up at the same time.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think develop market yields will fall, led by the US and, well, maybe led by Europe because things are developing much more. Growth is slowing much more quickly in Europe than I think was anticipated by the European Central Bank. Germany kind of testing a recession all of Europe slowing down faster that really, I mean, not too big a shock because a lot of what happened in Europe was the supply side shock that came from the energy. It wasn't a demand driven inflation shock. And so now that the supply side is returning to a more normal setting, demand never really took off that much. The response of the ECB was probably overdone. And I think they will probably be the first to cut next year. So we do see European yields coming down.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Got it. Thank you. So I know a lot of the work you do is focus on the US, but scanning the globe in terms of bond yields and interest rates, does anything stand out to you that you're all, you're bullish on duration everywhere on the world? Or is there a difference mainly the Federal Reserve, what the Federal Reserve do, that's going to have a lot of impact on US bond yields and global bond yields, but the rest of the world certainly has an impact too. So I guess we talk about Europe and Japan and European and Japanese investors in US treasuries sort of what is their appetite, what is their exposure. I know for a time, you know, Japanese government bond yields yielding zero US Treasury yields yielding up to 5% that seemed attractive, but actually for an investor who were to hedge their currency risk and hedge their dollar risk, it actually was like a negative pickup, maybe to do with the curve. So yeah, just what are your views on?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“And so I see a gradual move. So I don't know what sentiment's doing, but what I see as a more gradual approach by a lot of people. I'm not saying a headlong rush into long duration. I'm seeing more caution. Now, you know, maybe positioning in some of the ETFs, you know, the leveraged ETFs, et cetera, has gone. And those are probably people who are more trading oriented. But from a long-term sort of investor sentiment, it's been a much more gradual move than would be implied by some of the other indicators.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So, I don't usually take sentiment into account heavily. And the reason is that, again, like a lot of other things, I've tested it over the years, it hasn't worked very well for me. And I also, because the bond market is so large and dominated by so many large players that sort of investor sentiment, I use more marginal impact than say it might be in the stock market, I think. But having said that, although I think some positioning has gotten long, I can only judge by what I see among our client base at Schwab. A lot of people have started to move on a duration, but a lot of people are still kind of cautious and waiting in very short-term paper and because it pays more, right? If you can get 5%-ish in very short-term paper, why go out longer, take the risk, especially after the volatility we've seen over the last year.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Very interesting. Returning to treasuries and bonds. So you laid out a compelling case for why interest rates, bond yields, could continue to decline. How do you think about positioning? I've seen and heard of a fuel sentiment polls, investor surveys showing that bond positioning is actually quite long. In other words, clients actually agree with you, however, but that means that there's no one else to agree with you. In other words, so how do you assess the current bond positioning and do you think the positioning and sentiment supports or is a challenge to your moderately bullish view on rates?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Cash available to kind of fill this hole that might be created, or what are the ripple effects? And I think that that's the question mark around this very strong growth in private credit. What are the ripple effects of a problem that might run through that market? And I don't have the answer to that, but I do think that that's probably something we're going to see the regulators look at pretty carefully, saying, do these big fund companies have the cash cushion? Do they have the liquidity? We know that you're locked up. And so, you know, the gates can go up, but we also know that at times when somebody's locked up in one place, they try to get money from another place to fill the gap. And so what are those connections? What is that potential contagion is probably something that the regulators are looking at more closely?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Private credit will be around filling in gaps and the bank's regulation is stiffer than it used to be. And so, and certainly this episode last spring was a motivation for being more conservative in their lending and pulling back on some of the riskier parts of the market that are now being filled by private credit. I think private credit's around to stay. Does it Does it need to be there? Well, it is there. I don't know what it needs to be there, but it is there. And I think there is a push at the SEC and other FINRA, et cetera, to kind of look a little deeper and say, okay, well, what does this mean for the”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Right. And I guess the new word people are talking about is debanking, in other words, private credit replacing a lot of the lending activity of banks. I suppose one positive to financial stability is there, you know, can't really be a bank run on a private credit fund because clients have their money tied up. So from a systemic point of view, that's good. But yeah, how do you think that in other words, is there a hole left by banking that private credit needs to fill? Because I'm speaking as someone who following the lots of activity and the volatility in the banking sector, let's say, in the spring and summer of this year. And for a while, money was leaving the banking sector extremely quickly, deposit outflows. And so banks are reducing their loans or reducing their loan growth, I should say. And so private credit stepping in to fill the void, do you think that that will continue or do you think that banks rebound?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“The story being well, 64NE didn't work for a couple of years, so I need something else, right? But I'm, you know, I'm a fixed income person, so I am by nature somewhat skeptical. And so for me, I don't know who needs this product, but I think that if it's something people want to go into, yeah, a lot of education, a lot of disclosure around what it entails, how it's going to be managed, who's going to be managing it, what the range of outcomes is. I think that's one.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I hope so. I would think they do. I think most usually have to be for individual investors have to be sort of qualified buyer in a wealth area that qualifies you to buy them, I think in most cases anyway. Do people ever really know what they're buying in a more complex product is always the question, right? Does everybody know everything they need to know when buying in? Probably not. I think, you know, there are institutional buyers. You know, I think some of the big pension funds are sticking with the strategy and even allocating more as time goes by. There are certainly fund managers, et cetera, who are looking to boost total return that way. And wealth managers who are looking to satisfy a desire by a lot of clients to have something that will be uncorrelated with other assets.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“And do investors know what they're getting into? In other words, the marginal dollar going into private credit, who is it from? Is it from institutional allocators at endowment funds? Is it wealth managers? I'm not making a comparison at all to the great financial crisis, but a hallmark of there is exceptionally sophisticated products being bought by clients who maybe didn't understand what they were getting into. Again, not making comparison, but do people understand that it's not the same thing as buying a bond ETF, for example?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“When borrowing rates are this high, it's more likely to deteriorate quickly. I'm sure it has for a lot of these borrowers and how they get out of it is the big question mark. And so because of the opaqueness and the pricing, As an investor, you're just putting your money in and saying, okay, I'm trusting you to take care of this. Is your rate of return going to be what it was the last five years? Maybe, maybe not.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So you say you have a loan and it's in these companies, and the rate's gone to 10% and you can't pay it. You'll get another loan to help pay off your loan, borrowing from Peter to PayPal. And there's a lot of concessions that have to be made there. And that's leverage upon leverage. And these are like supposed to be bridge loans to get you to the other side. But we don't know, is that other side two years away? Is it one year away? Is it five years away? Do you have a state, does a company have the staying power? Does they in business with this kind of funding at these higher and higher rates? And so I just would tread very cautiously in private credit. It's very hard for investors to really know what they're getting. And that liquidity can dry up pretty quickly. So again, we're kind of late in the cycle. And so credit quality.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“It's very popular, but there are certainly issues that I think you really have to pay attention to. One is the opaqueness of the pricing. So they don't have to mark to market. So you really don't know what the valuation is unless you can go in and examine it and do the analysis yourself, which most people can't do. Every private credit manager that I've ever heard speak talks about how they've got it all under control and, you know, they're not going to have problems. But, you know, in reality, things happen and not everybody can be the lake woebagon story. Everybody's above average in that market. Well, if we do hit a bump in the road, so you have companies that need to refinance at higher rates, some of them are doing loans against loans. Right now, in financing, more financing against financing problems.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So we're not enthusiastic about any of this. And there's a couple of reasons. So leveraged loans, bank loans, short duration and high yields, very low credit quality. It's probably too late in a cycle to be that low in credit quality. There are liquidity issues there as well. And my concern is that the market really hasn't priced in what it means to some of these companies to roll over their debt at 8, 9, 10 percent. And the covenant quality is really gone down. As an investor in the event that you're, you know, you end up with some sort of restructuring, you may end up with pick bonds, payment and kind bonds. You may end up with equity. That is probably not why you bought in that market. Probably you've probably bought for the yield and that's not likely you're not likely to earn what you hope for in that market. So we're pretty cautious on the leverage loan side, on the bank loan side. When it comes to private credit, ML.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“For high people and high tax brackets, munis, and you can go a little further out in Munis. Oh, the other thing about corporate is that the yield curve is positively sloped there. So it's either flat or positively sloped. So you get a little bit more yield for going out a little bit in duration. Yeah, municipal bonds, you know, if you're in the, again, I'd have to check again, but if you're on a high tax bracket, you're looking at tax equivalent yields that are north of 5% for somebody in New York City could be even a little bit higher than that. So California, the really high tax areas, I look at pretty decent yields. And usually the buyers in the mini market are individual investors who are looking to lock in income, tax exempt income, and we think that that can make a lot of sense. You can go a little bit further in duration there without giving up too much in yield.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“While we like investment rate corporates, we were looking at yields in the five to six percent area, investment rate corporates. Now, most of that's BB, but assuming the economy doesn't fall into recession, we get a huge default cycle investment grade at those levels look pretty attractive to us. Spreads are low. They haven't really widened very much. But investment grade, you know, that shouldn't be too big an issue. At the upper end of high yield, if you're willing to take some of the risk there, I certainly would stay away from CCCs, but it looks like in the high yield space, a lot of companies have been able to refy or to continue to push out mature wall to 2025 or so. Corporates, I think, offer some opportunity both for yield and for capital gains, but again, sort of up in credit quality.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“I mean, we're going to be, you know, we're going to be up and down. And that's, so I think mortgages give us an opportunity where the price today. I wouldn't load the boat on them because I don't have a high level of confidence that the market is at any moment in time pricing in the right level of prepays in their models.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“This is why I think you have to tread carefully because this is a different mortgage market, a different housing market than we'd had in past cycles because so much of the market is kind of locked in at low rates. And so estimating prepayment streams or speeds is a little bit more difficult these days than it used to be. And I'm not sitting here with great confidence saying that I know what speeds are going to be doing and therefore how Quebec City is going to play out in that market. But I do think that I still think that they're reasonably priced for relative to say investment grade corporates for somebody who has the willingness to ride out that volatility. And again, one of our themes for 2024 is, yeah, lower yields but Rocky Road. I mean, there's no plain vanilla option here. There's no soft landing.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would say that they're very cheap, but they're not extremely cheap. And so, you know, I think the mortgage area has a level of attraction for a lot of investors, but I think you have to tread a little bit more carefully there just because of the convexity issues of the kind of liquidity issues that exist in the market. I think it's fine to have a position in mortgages. We kind of like them when they got really, really cheap. We think there's some room for them to approve from here. But I don't think that this is, I don't think it's going to be without volatility. I think it's going to be a lot of back and forth in that market to navigate.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Speaking of mortgages, what are your current thoughts on the guess we could talk about whole loan mortgages, but mortgage-backed securities in particular, which I know maybe one or two months ago were at extreme levels of cheapness relative to like investment grade spreads or some other metric. I gather they've rallied a little bit, but to be honest, I don't know how much they have. So yeah, how cheap are they still at extreme levels? Are they only very, very cheap instead of extremely cheap?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Very carefully to not have a market accident, right? Not have a problem where liquidity dries up too much. And so I think the combination of sending a very confusing signal to a market. Could cause some sort of pinch in the market, as we've seen in the past. So it doesn't, to me, I know that the Fed really, you know, is convinced it has the tools to do these actions separately. And I know there's a great deal of discomfort on the Fed's part to have a big balance sheet. It doesn't look good. They want to step back from the mortgage market. They want to have just enough to help the markets and the economy function without having too much. They want to stop, you know, they want to be able to repay funds back to the treasury as they have been doing for a long time. I understand all the motivations, but I don't know mechanically if it's going to work very well. And that's what has me concerned. So I think that it may be very difficult to do two things at once and calibrate it so precisely that you don't run into a problem.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Think there's a range of possible outcomes. So when I think about in the most straightforward terms, I think about quantitative tightening of putting your foot on the brake, right, to slow the economy. And that goes with raising interest rates, another way to tighten policy. So they go together. If you now say, well, I'm going to keep interest rates high to put a break on the economy, but I'm going to do quantitative easing, that wouldn't make a lot of sense. Same is true. If the Fed pivots to cutting rates because the economy has slowed down, that's putting your foot back on the gas or taking it off the brake. Why then are you using your other foot to stand by the brake? It doesn't make a lot of sense to me. These are two actions that go together. They reinforce each other and it doesn't make sense to me that they would do that. I also think you have to be able to really calibrate that.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Holdings earlier, you said that you're not sure, you're not sold on the idea that that is sustainable. Why did you say that? And is it because you, do you think there could be some sort of accident in the market?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and needless to say, in the early 2010s, there was so much ink spilled and discussions and hindering about the national debt. And of course, the past decade has been a decade of declining interest rates and declining bond yields. And I also can relate to your point because when the Federal Reserve is doing quantitative easing, they're buying bonds that should drive bond yields to go down. But actually, bond yields tend to rise during that period. The only way I could explain that is because the Fed tends to do quantitative easing when the economy is weak. And coming out of a weak period, bond yields are low, so they would tend to rise. So fundamentally, you know, the Fed buying a trillion dollars of something tends to increase the price and lower the yield. So it's a really interesting topic. But talking about the Fed buying assets, the Federal Reserve is continuing to do quantitative tightening to roll off its balance sheet, to decline its”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I would say that the market adjusts to the level of supply that's anticipated pretty efficiently. So yeah, it would probably have to be a big shock. But it is one reason we're not looking for yields to go all the way back to where they were, say, you know, during the pre-pandemic era because we do have more issue. We do have more deficits to fund. And we had on top of that, we have a political dysfunction that doesn't give us a clear pathway to dealing with it. And that, I think, is a factor to take into consideration that might keep that term premium higher, might keep that level of uncertainty higher. It might be that what goes into that catch-all, that constitutes the term premium. But I think as a driver of market action, it's overstated.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So, you're saying it's not that supply doesn't matter, it's that only a surprise change in supply would affect things. In other words, if there's a trillion dollar issuance tomorrow that just came out of the blue, like lightning, that bait make it. But pretty much everything else is priced in by the market.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“You need to clear. I'm not saying it doesn't matter. I'm not saying it is not that easy sort of correlation that people are making it. The U.S. Treasury Market. A built in demand from foreign central banks, major companies, individual investors. I mean, there is a built-in market for this that's hard to replicate anywhere else. So we're going to clear it. It's just a question of where do we clear it and to have sudden spikes because we're issuing more paper. The idea that this is going to last or that this is the sole driver, I guess, to me doesn't make a lot of sense.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“To a large extent, and also the major drivers yield is not how much the treasury is issuing from one month to another, one quarter to another. Treasury is always issuing paper, right? I'm not saying supply and demand don't matter, but I don't think they matter in the way that a lot of people paint it, right? So we cleared it roughly 5%. There's sort of a story like, well, who's going to buy the paper? You know, we've got so much deficit. There's so much coming. Well, it turns out that, yeah, maybe certain buyers step back, other buyers stepped in, households, mutual funds, money market funds, they would take as much paper as they could get their hands on at 5%. So the buyers shipped around. And yeah, on the margin, the supply side can affect who buys and what yields.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So you're making an empirical argument just saying this isn't what I've seen. And the argument about why it might not work, because again, intuitive, more supply, consistent demand or stable demand would cause prices to go down. It'll go up. Is that demand adjusts accordingly because it is anticipatory?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Than expected economy happening in the third quarter, and those numbers were coming out. And we had then this idea, this shift in expectations about what the Fed was going to do, and we had inflation fierce building. And then you throw on Treasury Supply and made a negative story in general, but I'm not going to tribute it solely to that whole thing about issuance because, again, keep on the market pretty smart. There are a lot of estimates out there. We all knew that there was going to be a lot of issuance. We all knew that once the debt ceiling dispute was over, you know, things were going to come out. There was going to be more paper issued. This just isn't a big shock. So I guess, again, I'm an outlier in this belief, but having tried to make this work as a trade over the years and not finding a statistical correlation.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“A great trade, a moneymaker, right? Well, when you do the work and you try it, it's a 50-50 kind of proposition. Sometimes they rally, sometimes they don't after auction. Sometimes they rally going into auctions. Sometimes they fall going into auctions. And if, you know, if you do the work on it over various time periods, and I've done three minutes to three months to, you know years, the correlation just isn't there. So yeah, sometimes it works and sometimes it doesn't. And so I am a bit of an outlier. I understand supply and demand. I understand that you have to, there has to be a clearing yield, but I don't think that the move last fall was really that tightly. It looked like it was tightly correlated, but in general, we also had a much stronger.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I know that I'm a bit of an outlier in this, but I haven't started my career in a trading desk. There was always a view that as you approach auctions, this isn't the first time we've worried about the Treasury budget deficit, by the way. Now, we didn't just wake up this year and say, oh my gosh, you know, we're running in front of the deficit. Treasurer's going to have to issue more paper. Oh, no. That isn't a surprise, right? We've known this for a long time. But it comes into focus from time to time. But having started on a trading desk, this was always the story that you kind of wait for yield to back up going into the election and then they would clear the paper and then they would the market would rally once that was.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“And then one day, I think it was November 1st, where it actually was released, the data was released, and it actually was better than some investors anticipate. And then we have a month-long, basically nirvana for duration bulls. Can you explain to someone who has that view why it may seem that way, but actually the statistical data does not support the connection?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Right. And I know there are sort of two schools of thought about what drives Bonnie's one is it's only what we talked about central banks and the underlying economy. The other school of thoughts, let's call that school two, is yes, but supply and demand matters a lot when the US Treasury issues a ton of bonds. The supply goes up and demand stays constant. The price will go down and yield will go up and some point to the very aggressive issuance of the US Treasury over the past few years and they look at the rise in bond yields and they draw that connection. So it's my understanding that you actually think that is the wrong connection to make. So someone who looks at, for example, the treasury of general account and the quarterly refunding announcements and they associate the pretty severe bear market in the summer and fall with coupon issues.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Media term duration where you lock in yields. So in the treasury market, we're looking at four and a quarter or so, but you lock in yields on investment-grade corporate bonds, you know, in the five plus area. If you're an investor and you're saying, I'm getting a 5% plus without a lot of risk, why wouldn't I want to do that for at least that part of my portfolio?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“First of all, I thought that was overdone. So we really liked him at 5%. We thought that there was too much of a narrative around supply, treasury issuance, budget things. You know, that rarely has a strong statistical correlation with the trend in yields. And so we thought that that was just a narrative that was adding to the shakeout in the market. And there was this tremendous uncertainty about what the Fed was going to do. Now that we've shifted, again, in the fundamentals have kind of reverted to that slower growth falling inflation scenario, we still feel good about duration. It's not the much fun as it was at 5% when you're at four and a quarter or wherever we are today, 417, I think this will low. But I do think that over time, having a strategy that targets an intermediate”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“So I've been doing this since the late 70s. So I have seen a few Bon Bear markets in my time, more than a few. And yeah, you see some of these spectacular boats. I mean, this level of volatility is something that harkens back to the late 70s, early 80s. And yet we're at much lower. We have huge moves, even though the yield levels are lower than they were then moves. And so I think that that's a little bit startling for a lot of people to look at that sort of volatility within the treasury market because it hasn't been the case for a very long time. But I do think that maybe this is a rally in a bear market. I don't think so. We have a fairly confident view that that 502 on the 10 year was the peak for the cycle. And the reason is the fundamentals are shifting. If it hadn't been”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Okay, that makes sense. And what's your level of confidence in your long duration view given the price action? I mean, does a move like this in just a spectacular decline in yields over a month? Does that occur during a bond bear market, for example?”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Plug in 2% inflation. We've got three percentage three percent or so for the Fed funds rate. You add on 100 basis points and a lot of ups and downs and you've got a tenure that trades between, you know, three and a half to four and a half as kind of a long run picture. Again, there's going to be a lot of fluctuations around that, but you have to start with some assumption, I think, on what's the natural rate should be, what the neutral rate should be, that's the hardest thing for us to estimate because it keeps moving around on us.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT
“Interest rates, quantitative easing, all that, just threw all that out the window. But it was kind of diminishing as a signal before that. So we take nominal GDP growth into account because it's still important, but it's not kind of the big factor that we use in modeling. So when we think about valuation, we're basically trying to take what is the quote unquote neutral rate that we estimate and what is the inflation rate that we can plug in. And when we come down to it, we look at, well, if the neutral rate for used to be negative, the neutral rate now has moved up, it's in positive territory, but it's not the 2% that it was for 40 years. It may be it's closer to 1%.”
2023-12-12 · Forward Guidance · Kathy Jones: The Bull Case For Bonds, And The Need For “Caution” on Private Credit & Leveraged Loans · IDENTIFIED FROM THE TRANSCRIPT